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    Perceived Barriers in the Adoption & Usage of Credit Cards

    Perceived Barriers in theAdoption & Usage ofCredit Cards

    Researchers Roll #

    Hasnain Akhtar 217M. Ayaz Amjad 225M. Fahad Butt 226Madiha Irshad 228Nain Tara 240

    Department of Management Sciences 1

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    Perceived Barriers in the Adoption & Usage of Credit Cards

    Declaration

    We declare that no part of this research paper has been taken from existingpublished or unpublished materials without due acknowledgement and attrition,and that all secondary material contained therein has been fully and

    appropriately referenced to the best of our ability.

    Signed _______________

    Dated: 12th April 2010

    Department of Management Sciences 2

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    Perceived Barriers in the Adoption & Usage of Credit Cards

    Acknowledgments

    We would like to thank Almighty Allah, for blessing us intellect that has helped uscompleting this complex task.

    We would like to thank our supervisor Mr. Abdul Mannan Khan for his guidance,encouragement, tremendous help and support throughout our research. Wewould like to thank the staff members of banks that include Habib Bank Limited,Bank Alfalah Limited and United Bank Limited for clarifying our understandingabout basic concepts in credit cards.

    We would like to thank our parents for sponsoring us and other family members

    & friends for their love and support.

    Department of Management Sciences 3

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    Perceived Barriers in the Adoption & Usage of Credit Cards

    Abstract

    Purpose: - The purpose of this research is to present an exploratory research into thecurrent users and non-users of credit cards. The aim is to identify the different factorsthat cause low adoption and usage rate among the Pakistani population. It then aims to

    discuss barriers that are acting in the stumpy growth of a potential credit card market.

    Design/Methodology: - A survey was conducted, statistical test were used to identifythe intensity of each of the factor, identified through previous literature. A sampleconsisting of both cardholders and non-cardholders was utilized to gauge the differencesamongst the perception about credit cards in both the segments. Than statisticalanalysis tool t-test was employed to determine the associations between the results ofcardholders and non-cardholders.

    Findings: - The adoption & usage of credit cards was found to be significantlyinfluenced by demographic factors as well as perceptions that include credit card leadsto overspending, unreasonable interest rates, and lack of information, low

    acceptability. Certain variables create bigger barricade for the users like additionalcharges, high interest rates, insufficient credit limits etc.

    Research Limitations/Implications: - This research provides an in-depthunderstanding of factors or variables influencing the plastic money market negatively inPakistan. Thus it is useful in designing marketing strategies for card-issuers for bettergrowth of this payment mechanism. The sample was drawn from the narrower base thanthe actual target population of the Pakistan market.

    Practical implications: - Hitherto there has been a very limited (almost zero) amount ofresearch into payment cards in Pakistan and yet with the market for financial servicesopening up in Pakistan, this research is timely both for domestic banks wishing to issue

    credit cards and for foreign entrants, seeking to enter the Pakistani market via theirexpertise in credit cards.

    Originality/Value: - Despite the importance of consumer credit, virtually no literature orresearch exists on identifying the barriers in the adoption & use of credit cards inPakistan. So this paper intends to close this gap. Further, by combining thedemographics, costs incurred with the respondents perceptions concerning credit cardownership and use, our study offers a richer analysis to explain consumer behavior thanprevious literatures.

    Key words:credit card, barriers, Pakistan,

    Paper Type:Research paper

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    Perceived Barriers in the Adoption & Usage of Credit Cards

    TABLE OF CONTENTS

    TABLE OF CONTENTS .....................................................................................................5

    ............................................................................................................................................. 5

    Department of Management Sciences 5

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    Perceived Barriers in the Adoption & Usage of Credit Cards

    Introduction

    The liberalization of the monetary sectors in Asia has resulted in the rapid propagation ofcredit card companies and financial companies providing other types of consumer credit.In modern commerce, credit cards (along with debit cards) serve as a payment devicein lieu of cash or checks for millions of routine purchases as well as for manytransactions that would otherwise be inconvenient, or perhaps impossible.(1970-2000;Durkin, Thomas A). The credit card market in overall world has expanded drastically thatthe issuers of foreign countries has introduced mobile phone credit cards for theconvenience of their customers.(Amin, 2008) This, coupled with the entry of foreignbanks, has greatly increased the number of credit cards available, and hence suchspending in Pakistan. Although credit card was introduced in Pakistan decades agowhen Habib Bank, the largest bank in Pakistan, launched its gold card, but people hadhardly know about this card because of its very limited issuance. Several years back,Master card was introduced by Allied Bank of Pakistan which also didnt receive thatmuch appreciation. In 1994, Citibank had introduced its VISA Card and that was theturning point in the history of Plastic Money in Pakistan. Citibank had done a tremendous

    job to edify people of Pakistan, as well as, financial industry about credit cards and its

    significance in today's world. It was their aggressive marketing and heavy investment intechnology, that made deserving Citibank to be called the industry leader of Pakistan'scredit card business. After the success of Citibank card, Muslim Commercial Bank, Bankof America, and National Bank of Pakistan had launched their credit cards. In the verynear future we are expecting more local and international banks to enter and havesuccess on the horizon of Pakistan's credit card business. The plastic money industry inPakistan is one of the undeveloped ones. At this time, there are a few people which areusing them or even are aware of its services. The majority of people does not consider itfruitful and part their ways from it.

    It may be pointed out that the misuse of debit/credit cards has opened new chapters offraud and forgery. In most of the cases, the misuse of cardholders personal information

    has occupied a prominent place. Previously, Point of Sale (POS) terminals used togenerate transaction slips visibly indicating the cardholder personal information such asname of the cardholder, 16-digit Card Number, date of expiry, etc., which can easily beused for fraudulent purposes. The State Bank of Pakistan has taken several measuresto enhance security of plastic money transactions in the country with a view to effectivelyaddress customer complaints and to ensure continued growth in the fields of e-bankingand e-commerce. (State Bank of Pakistan, August 23, 2008)

    According to status report of Q2 fiscal year 07-08, total 6.7 million plastic payment cardswere in circulation which showed 2.5% increase over the previous quarter. Total numberof credit cards in transmission has increased from 1.62 million to 1.66 million for thesame quarter, registering an increase of 2.5 % over the previous quarter. The major

    portion of plastic payment cards is absorbed by debit cards which comprise of 4.8 millionusers all over Pakistan, as described in second quarter report of fiscal year 2007-08,issued by State Bank of Pakistan. (State Bank of Pakistan, 2008)

    So overall we can say there is growth in this field, but still some particular forces areacting as barriers that impede people to use credit cards and for the better growth of thisindustry these barriers must be immediately identified and cured.

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    Perceived Barriers in the Adoption & Usage of Credit Cards

    This research report proceeds with explaining the problem statement, followed byfindings of the previous researchers written under literature review and theoreticalframework. Afterwards, model and methodology of the analysis will be explained.Methodology section includes sample selection, sampling techniques and analysistechniques employed to back the results of the findings. Further, findings section isestablished where the results of the research are elaborated. Lastly, some

    recommendations and implications are presented along with the limitations faced by thepanel of researchers.

    Problem statement

    Few years back, it has been estimated that there are likely to be around half millionpotential card users, in the near future (http://www.instecdigital.com/1/plastic.htm).According to SBP report the tendency of number of cardholders is increasing. But themajor portions of people are attracted toward debit cards. Acceptance of credit cardsamong the general audience has been quite low in comparison to debit cards and ATMcards. Still major proportion of po